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Newport Corp. - Laser Sharp Value

February 01, 2008 | About:
Newport Corporation [NDQ:NEWP] Feb. 1 [11:40 AM] quote: $10.64

52-week range: $10.19 - $19.36

Newport Corp. supplies sytems and products based on laser technology, precision robotics and automation, vibration isolation and other similar areas. Last year about 52% of their revenues came from the US and 48% were international sales.

2007 was a down earnings year for Newport with expected final numbers of $0.68/share versus $0.91/share in 2006. A new factory in China is expected to be up and running in this first quarter of 2008 which should help NEWP see better EPS in 2008. Current estimates for the new year hover around $0.71 /share.

Between the down year and the general market malaise NEWP shares have been knocked down from their November 2006 high of $22.80 to today's $10.64. Thus, these shares now trade for lower than the absolute low prices since early 2003. When the 2003 low price of $10.50 was in effect sales per share were about $4 versus around $12 now.

Cash flow/share was barely positive in 2003 versus apporximately $1.35/share today. Newport was showing a small net loss back then compared with the $0.68 EPS figure for 2007.

At their highs in each calendar year from 2000 - 2007 Newport shares have hit $16.30 or better and excepting 2005 they peaked at $19.20 and higher when the market got enthusiastic on technology in general and Newport in particular.

NEWP's balance sheet is adequate with LT debt at just 30% of capital. Treasury cash has been building- from $71 MM at year-end 2005 to $139.7 MM as of September 2007. Newport's price/book value has not looked this cheap since immediately following the 9/11/2001 market sell-off. Its price/cash flow has not been as low as today's since 1999 when the shares were about to surge from $3.90 to $192.10 [at the height of the tech insanity in 2000].

Newport has traditionally traded at a premium P/E. Its 10-year median has been 36X. Value Line is assuming a 24X multple for teir 3 - 5 year outlook. I'm using an even more conservative view with 22X multiple on 2008's estimate $0.71 EPS to arrive at a target price of $15.62 for year end. This leaves room for over a 46% gain from the current quote.

Is that logical? My goal price is less than any of NEWP's peak share prices actually achieved in each of the past 8 years [2000 - 2007]. Newport shares actually fetched over $19 in 7 of the past 8 years. Sales, cash flow and book value are all expected to hit record high levels this year.

Some top value managers own big chunks of Newport:

As of Sep. 30, 2007:

Dimensional Fund Advisors held 9.32%

T. Rowe Price held 6.11%

Royce and Associates held 5.55%

Barclay's Global Inv. held 5.24%

Bank of NY/Mellon held 3.81%

Vanguard Group held 3.38%

Thomson Horstmann 7 Bryant held 2.77%

Bank of America held 2.34%

Private Capital Managment held 12.39%

SouthernSunAsset Management held 12.32%

Guru ownership was:

Arnold Van Den Berg: 2,601,623 shares [as of YE 2007]

-an increase of 31.65% from his November 2007 position

Bruce Sherman held 4,596,481 shares [as of September 2007]

Risk? The lowest share price recorded at any time since early 2003 was a recent $10.19 or just 4.2% below its price right now. With fundamentals vastly improved since 2003 I see very low risk of a major decline from here.

Assessment: Newport shares look appealing as they trade near 5 year lows yet have good prospects for both better company performace numbers and a more favorable market environment. With historical valuations way above today's, a reversion to the mean suggests a share price of $15 - 20. Newport's risk/reward seems exceptionally promising.



About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.TalkMarkets.com

Visit Dr. Paul Price's Website


Rating: 3.5/5 (15 votes)

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